FIA submitted its response to ESMA’s latest MiFID II Consultation Paper on 2 March. The response and annex covered a wide range of issues within the consultation paper, which was issued on 19 December 2014, and followed a period of extensive dialogue with members. Additionally, FIA affiliates, including FIA and FIA EPTA, submitted a separate response and annex on microstructural issues.
Among the areas of greatest concern for FIA Europe and its members in MiFID II/MiFIR are those related to indirect clearing and straight-through processing (STP). As is the case with respect to indirect clearing of swaps under EMIR, ESMA’s proposals (specifically, the leapfrog payment from the clearing member directly to the indirect client) are highly susceptible to legal challenge in the event of the insolvency of the direct client. The jurisdictional scope of the requirements needs clarification – and FIA Europe advocates that the provisions should only apply with respect to clearing of a contract on an EU CCP by an EU indirect clients.
FIA also asked ESMA to acknowledge that potential conflicts of law may arise when the direct client is not located in the EU.
Critically, if these provisions are to be successful in their aim to facilitate access to clearing, it is important that any requirements be sufficiently scalable.
With respect to straight-through processing, FIA's position is that pre-execution checks should not be required for ETD orders, where certainty of clearing is ensured through the binding contractual arrangements of the applicable trading venue and CCP rulebooks. Unlike OTC derivative clearing, certainty of clearing is ensured via the mechanism that requires the executing broker’s clearing broker to clear the trade if the client’s clearing broker rejects the trade for clearing.
FIA Europe’s summary provides a full list of issues and views covered in its response on the following:
- indirect clearing;
- straight-through processing;
- commodities;
- non-discriminatory access to trading venues, CCPs and benchmarks;
- transparency;
- market data and reporting;
- organizational requirements for investment firms;
- organizational requirements for trading venues;
- market making;
- order to transaction ratios;
- co-location and fee structures;
- tick sizes;
- clock synchronization;
- execution of orders
